Bad spending decisions have immediate and long-term implications

Students at the Joseph R. Smallwood student centre at Memorial University Wednesday. Post-secondary students face a challenge in managing their finances. Photo by Joe Gibbons/The Telegram

Michelle Brydon, a third-year student at Memorial University, does not have a credit card, and she does not plan on getting one any time soon.

"I don't trust myself not to spend it ridiculously on things online, and I figure if I work a part-time job and if I have a debit card, that's money I already have - not money I don't have," said Brydon. "So if I'm spending money I know I have, then I can get to the bottom and not have anymore to spend, versus getting myself in debt."

Credit Counselling Services of Atlantic Canada, a non-profit organization, offers advice to MUN students on managing their finances.

Credit counsellor Stephen Walsh said there are many ways students can end up in a tight spot financially after they receive their student loan for a semester.

"I know the kind of temptations that were around when I was a student. People buy new stereos, they buy video games. There's lots of different consumer items that are out there that you can spend your money on. Sometimes students do a little bit of partying on the money that they get."

Walsh said it is important for students to break down how much money they will bring in through the course of a semester and match it to their expenses early on.

"What you want to do is break down all your money, everything that you've got coming in, whether it be student loans or part-time job income, and do yourself up a budget so all that money is going to be accounted for and you're not, basically, going on a big spending spree when you first receive your loan. That's the kind of thing we see a lot of. Students receive their student loan, and all of a sudden they're rich for a week. Then a week later, their money is all gone."

Brydon understands the trouble that comes with debt. She has friends attending MUN with thousands of dollars of debt to contend with. Soon to turn 22 years of age, Brydon said she hopes to finish her archeology studies at MUN with as little debt as possible.

"I'd rather have a credit rating of zero than minus-a-lot."

Walsh suggests students should avoid using credit cards if at all possible, but if they do have one, make an effort to pay it off as soon as possible.

He said it's unfortunate some students do not realize the decisions they make now can stick with them for years. A missed monthly payment on a credit card can stay on a person's credit history for six years, he said.

"That affects you way down the road in terms of loans and mortgages," said Walsh. "So five years down the road when you graduate university and you go in to get your first car loan, either they're going to laugh you out of the office or they're going to offer you such an outrageous interest rate that you'd never take it."

Responsible use

MUN students Rachel Singer and Charles Kotowych try to use their credit cards responsibly.

"I think I figured out that debt is a bad thing pretty early," said Kotowych, who tends to make payments on his credit card shortly after he uses it.

Singer's parents started giving her allowance money when she was 12 years old.

"They told me if I don't have the money in my pocket, I can't spend it, so that's how I was," said Singer, adding she knows others dealing with severe credit card debt and would not want to be in their shoes.

Walsh said if a university student does want a credit card, they should shop around and see what banks have to offer in terms of specialized cards with lower interest rates for those enrolled at a post-secondary institutions.

The fact MUN students pay lower tuition fees than most other students in the country makes it easier to avoid racking up credit card debt, according to Singer.

"You can work in the summer and pay off your tuition, which is a huge thing that you can't do at a lot of other schools," she said.

Second-year MUN student Brandon Butt would not trust himself with a credit card, worrying he might purchase expensive items without considering the consequences of paying interest.

"I'd be out like $20,000. Don't even get me started. I'm addicted to spending money."

First-year student Zach O'Brien is aware that even though he does not have a credit card, he can still develop a credit rating by paying his monthly phone bill.

"Best thing to do is pay your phone bills and build credit like that," he said.

Credit cards are often used for booking flights, but Brydon said she's able to use her parents' credit card and pay them back.

"They're happy to do that for me, which makes it a lot easier," she said. "I don't know if I really need one at this point."

Walsh has met with recent graduates needing to repair their credit history because of missed payments. In such cases, he said, the plan of attack is to plan a budget and make regular payments or arrange for a debt repayment program.

"What that will do is actually put them at a lower rating scale on their credit report ... so it kind of shows good faith on their part that they're going to pay it back. That goes a long ways to re-establishing their credit down the road."

Walsh will be among those setting up booths in the University Centre at MUN Oct. 3 as part of the Healthy Mind Awareness Event.

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September 24, 2012 - 13:01

It's important to build credit - and a credit card is one of the best ways to do that.
The ownership ultimately rests on the shoulders of students - and you need to be responsible. I've had a credit card since my early university days and thank God - because how else are you going to get financing for that car, or go to the bank and ask for a loan, get a mortgage without building some credit? It can't be done overnight, and waiting until you are 25-26 to start is ultimately a huge (huge) mistake. Factor student loans into all this - and if you are looking for any sort of lending or credit products down the road, it will be a difficult process!